LION MICROELECTRONICS(605358)：SET TO ACQUIRE GUOJING SEMICONDUCTOR TO EXPAND IN 12-INCH SILICON WAFER INDUSTRY

　　What's new
　　On February 7, Lion Microelectronics announced its subsidiary QL Electronics Science signed a framework agreement on the restructuring of Guojing （Jiaxing） Semiconductor with Shanghai Kangfeng Investment Management, Shanghai Zhezhong Construction, and Jiaxing Kangjing Semiconductor. QL Electronics Science plans to acquire a 58.69% stake in Guojing （Jiaxing） Semiconductor.
　　Comments
　　Expands presence in silicon wafer industry through M&A and reorganization to strengthen advantages in production capacity. Guojing （Jiaxing） Semiconductor specializes in R&D, production, and sales of 12-inch lightly doped silicon wafers, as well as polished wafers and epitaxial wafers fit for process technologies under 28nm. On January 9, Guojing Semiconductor announced its 12-inch semiconductor large silicon wafer production line had started mass-production, which is currently at the client acquisition and product verification stage. The designed capacity of the project （which has two phases） is 4.80mn pieces per year. We believe the firm’s production of 12-inch silicon wafers will likely increase to 300,000 pieces per month after the M&A and reorganization initiatives, making it the largest silicon wafer manufacturer in China. Meanwhile, the company continues to expand its presence in silicon wafer sectors, improving the quality of its 6-, 8-, and 12-inch products, and developing lightly doped and heavily doped wafers. We expect such efforts to boost its competitiveness.
　　Construction of silicon wafer production lines takes time; Lion Microelectronics enjoys competitive edges. Currently, it takes 1-2 years for a company to put a 12-inch wafer factory into operation, which includes construction, the transfer of equipment, and commissioning. If there are key equipment to be transferred, the period will be even longer. We think in the next 2 years, global supply of silicon wafers will likely remain tight until expanded overseas capacity comes into production, and we think it is important for domestic semiconductor companies to complete verification and mass-produce their 12-inch silicon wafers during this period. Through M&A and reorganization, Lion Microelectronics has gained competitive edges at a critical time. We believe this, combined with the firm’s integration of existing industrial resources, can create synergies and promote mass-production of 12-inch lightly doped silicon wafers.
　　Valuation and recommendation
　　We keep our revenue forecasts unchanged at Rmb2.54bn for 2021 （up 69.2% YoY）， Rmb3.76bn for 2022 （up 48.0% YoY）， and Rmb5.71bn for 2023 （up 51.8% YoY）。 Meanwhile, our net profit forecasts stand at Rmb618mn for 2021, Rmb921mn for 2022, and Rmb1.39bn for 2023, with YoY growth of 206.1%, 49%, and 50.8%. The stock is trading at 59.7x 2022e P/E. We OUTPERFORM and our target price of Rmb169.10 based on a SOTP valuation method, offering 40.67% upside.
　　Risks
　　Slow progress in customer recognition of the company’s wafers; product prices and downstream demand fluctuate; less M&A activity than we expected; reorganization does not go to plan.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。